"Canada and Mexico prepared to retaliate over tariffs from President Trump, as the U.S. and its neighbors spiraled into a trade war that threatens upend decades of economic integration.
The U.S.'s new 25% tariffs on all goods and 10% duties on energy products, due to go into effect Tuesday, will inflict severe damage on America's neighbors to the north and south. The tariffs risk pushing the U.S.'s top trading partners into recession, as both nations send 80% of their exports to America. The Canadian dollar and the Mexican peso are likely to weaken against the U.S. dollar.
Their strategy is to make sure Americans feel the pain, too. But they are likely to focus on what experts call precision strikes against U.S. exports from Republican strongholds and industry groups with political leverage in Washington.
Late Saturday, Canadian Prime Minister Justin Trudeau said his country would impose 25% tariffs on more than $105 billion of U.S. goods. "We didn't ask for this, but we will not back down," he said, warning that American jobs in their auto and manufacturing industries were at risk.
A first wave, set to take effect on Tuesday, will hit $20 billion of imports from the U.S., including alcohol, coffee, clothing and shoes, furniture and household appliances. On Sunday, Canada released a list of tariff targets, including products from Republican-leaning states, such as whiskeys from Kentucky, oranges from Florida and appliances from South Carolina. Government officials on Sunday also said they were targeting motorcycles in Pennsylvania, which has a Harley-Davidson plant in York.
A second wave on another $85 billion of goods would include tariffs on cars and trucks, agricultural products, steel and aluminum and aerospace products. The second phase will begin in three weeks, to give businesses enough time to stockpile and find alternatives.
Two Canadian provinces said they would join in the effort, too, with Ontario and British Columbia moving to block the sale of U.S. wine, spirits and seltzers. Ontario alone is one of the biggest buyers of U.S. alcoholic beverages, selling almost $700 million of them every year, said Doug Ford, the provincial leader.
Trudeau said he spoke with Mexican President Claudia Sheinbaum and that both leaders agreed to work together to deal with Trump's actions. Sheinbaum said Mexico's response will include tariff and non-tariff measures.
Her plan, which will be disclosed on Monday, calls for tariffs on specific U.S. goods from Republican strongholds, one person familiar with the matter said. The Sheinbaum administration also aims to accelerate an ambitious import-substitution program known as "Plan Mexico" and would also launch a campaign to promote goods made in Mexico.
Canada held back on a measure that could have had a bigger impact on the U.S. -- putting export taxes on oil and gas to raise the cost for U.S. consumers. Alberta, where most of Canada's oil is produced, has resisted any idea of limiting exports to the U.S.
With much smaller economies, Mexico and Canada can't impose the same impact on the U.S. economy. But they are betting they can inflict enough reciprocal suffering that Trump, who campaigned on lowering prices after a period of elevated inflation, will back down.
A trade war would hit U.S. income, hurt employment and increase inflation, the Peterson Institute for International Economics said.
U.S. inflation, at 2.9% in December, is still running higher than the Federal Reserve's 2% target. The Peterson Institute estimated that U.S. inflation would be 0.54 percentage point higher with the tariffs this year than without. The U.S. depends on Canada for most of its imported oil, which is refined into gasoline in the Midwest, while Mexico is a supplier of everything from fruits, vegetables, meat and beer to electronics and household appliances.
On Sunday, Trump acknowledged the potential impact of his measures. "Will there be some pain? Yes, maybe (and maybe not!)" He wrote on his Truth Social platform. "But we will Make America Great Again, and it will all be worth the price that must be paid."
A senior Canadian government official said Canada felt it had to go big enough to respond to Trump's maximalist approach. The official noted that U.S. tariffs are in some ways like a 2022 border shutdown when truckers protested government Covid-19 measures by blocking border crossings. U.S. auto factories had to quickly halt production.
"The key to retaliation is that they don't affect your country's economy and consumer prices, and that your retaliatory duties have an economic and political impact on the U.S.," said Kenneth Smith Ramos, a former top Mexican trade official.
Retaliation worked in 2018, when Mexico responded to U.S. tariffs on steel with tariffs of its own that included steel, pork, cheese and bourbon. The U.S. eventually backed down.
Trump's executive order on tariffs includes a clause that will allow the U.S. to raise the tariffs if Mexico or Canada retaliates. The White House said the duties would remain in place until Mexico, Canada and China stop fentanyl smuggling and illegal migration. "The Mexican drug trafficking organizations have an intolerable alliance with the government of Mexico," the White House said.
Sheinbaum rejected what she called "the White House's slander" about Mexico causing the U.S. fentanyl problem. "If they want to act, they should not set their sights on Mexico, but on their own country, where they have done nothing to stop the illegal sale of this and other drugs," Sheinbaum said Sunday afternoon. She proposed the creation of a binational working group made up of public-health and security officials from both countries.
Canadian officials also dispute Trump's claims about fentanyl. Trudeau has noted the drugs seized at Canada's border are a fraction of those caught at the southern border. The U.S. Border Patrol seized 46 pounds of the opioid at the northern border last year, compared with 21,000 pounds seized at the border with Mexico.
Despite tough talk from Trudeau and Sheinbaum, the hit to Canada's and Mexico's smaller economies is likely to land much harder than in the U.S. Research firm Capital Economics said Canada's GDP could fall as much as 3%, while Mexico's could suffer a 2% drop.
The U.S. tariffs will undermine nearly half a century's efforts to build a North American common market, said Tom Shannon, who was undersecretary of state for political affairs in the first Trump administration. "Trump is splintering an effort to build a trilateral approach to trade," he said." [1]
Missing in this text is the reaction of people who were benefiting from this trade, particularly illegal drug cartels, including the Mexican government.
1. Canada, Mexico Set Retaliation For U.S. Tariffs. Perez, Santiago; Monga, Vipal; Harrup, Anthony.
Wall Street Journal, Eastern edition; New York, N.Y.. 03 Feb 2025: A1.
